Sunday, 20 February 2011

Stephenson's Responsibility Threshold

I have a theory, well, actually that’s an exaggeration; I have a hunch.

My hunch is that the standard salary model employed by most companies in the capitalist west is fundamentally broken.

The model is, theoretically, based on the idea that the greater responsibility and accountability you shoulder, the greater your salary in reward.

In the realm of a small business, where the owner is the principle benefactor of success as well as being the main loser in the event of failure this is a clear and effective mechanism.

In a pure capitalist model this probably works as well, if your company underperforms your shareholders oust you from the CEO seat.

But we in the UK (and the US as far as I can tell) are a long way from a pure capitalist model. Government-granted monopolies permeate our economy in the form of copyrights, patents and trademarks, monopoly and merger commissions rule against market-created monopolies, deals are done behind closed doors in clubs and meeting rooms that do not act in the best interests of the shareholders or customers, etc etc etc.

We all know this, but we put up with it because changing it is outside our sphere of influence.

Lobbyists and voting blocs have more say that we do, we resign ourselves to the inevitable.

One of the reasons that it ends up being outside our influence is that there are actually a very small number of people at the top of the pyramid who not only wield a disproportionate influence in their domains, they also, through their connections to other members of this elite, have a disproportionate influence in other domains.

This effect is amplified by the “revolving door” by which people enter and leave government having made or influenced changes in the area that they subsequently work*.

This is where Stephenson’s Responsibility Threshold comes in.

Basically my hypothesis states that at the bottom of the salary scale the risks incurred by the individual are far greater than the potential impact of their failures, whereas at the other end of the scale, the impacts of the failures are far greater than the risk incurred.

I’ve represented this on the graph below:

I hope this makes sense?

The bit where the business and personal impacts meet is Stephenson’s Responsibility Threshold and it represents two things:

Firstly, it is the point at which you can say someone is over-paid (to the right) or that you have a job that is unlikely to reward risk takers and innovation (to the left).

Secondly, and this is where I’m really straying into the realms of the completely unsupported hunch, it highlights the point at which true accountability stops.

To the left you have a state whereby the individual does not fully have the authority for the job they have been charged to do (they cannot be accountable because they have never truly been empowered).

To the right you have the situation of the exec who signs-off the work without understanding what they have improved. Effectively they cannot be accountable because they cannot be expected to understand everything that happens beneath them (see Andy Coulson and James Murdoch [claiming] not to know about the phone tapping at News International papers for example).

Fortunately the more cerebral media (and Private Eye especially) provides plenty of examples that I can use to back up my theory:

A recent study highlighted by the BBC found that Directors were more optimistic than their front line staff about the future in terms of the wider economy, their company in particular and their personal future if something were to go wrong. Sherlock Holmes was not required to figure out why this might be the case; not only are the rewards higher, the penalties are lower too.

A junior member of staff at NBC recently posted (on you tube) a video clip from the early 90s of a couple of journalists discussing (and failing to understand) what the internet is. 20 years later it’s very amusing and lots of people looked it up. The people in the clip subsequently showed it on their current morning chat show and had a good laugh about it. The employee who posted it was fired.

The Rotten Boroughs column of Private Eye*** is riddled with examples of people failing hugely in one exec job only to turn up in a similar one 6 months later having received both a pay-off and a pay in. The In the City column shows much the same in the corporate world and the tragicomic career of Geoff Hoon is a classic example for how it works in government.

So assuming that you’re in complete concordance with what I’ve written, the only question remains is, at what level does the threshold manifest itself? Obviously this will vary from company to company but I’m reckoning it’s in the region of £142,000 - $400,000.

*Google Richard Bowker for a prime example.

** Some nice examples of reward for failure here:

David Liddiment, oversaw the collapse of ITVs ratings to its lowest level in 47 years, now a BBC trustee advising on Radio 4.

Sally Morgan, former Blair aide exposed in the cash-for-influence sting by Channel 4, now chair of Ofsted.

Lord Lang, former tory MP, got lucky under Major, rejected by his constituents in '97, now chairman of the Advisory Committee on Business Appointments.